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MEMORANDUM

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT

Project Coriander

To: Special Committee of the Board of Directors of Penterra Pharmaceuticals Corp.

Diane Prescott, Chair James Okafor, Member Dr. Helen Ng, Member

From: Daniel Obi, Calderwood & Harkness LLP

(Reviewed by Renata Vasquez, Responsible Partner)

Date: June 20, 2023

Re: Comprehensive Summary of Related-Party Relationships Between Penterra Pharmaceuticals Corp. Insiders and Caliston BioSciences, Inc. Stakeholders

C&H Matter No.: 1025-00006

This memorandum is protected by the attorney-client privilege and constitutes attorney work product prepared in anticipation of litigation or in connection with the provision of legal advice. It is intended solely for the members of the Special Committee identified above and should not be disclosed, distributed, or reproduced without the prior written authorization of the Special Committee Chair. Any unauthorized disclosure may result in a waiver of applicable privileges.

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I. Purpose and Scope

The purpose of this memorandum is to identify, catalog, and analyze all existing relationships, financial interests, and affiliations between the directors, officers, and other insiders of Penterra Pharmaceuticals Corp. ("Penterra" or the "Company") (NYSE: PPHR), a Delaware corporation headquartered at 400 Innovation Drive, Suite 1200, Princeton, New Jersey 08540, on the one hand, and the equity holders, directors, officers, employees, and professional advisors of Caliston BioSciences, Inc. ("Caliston"), a Delaware corporation with its principal office at 88 Harbor Point Road, Cambridge, Massachusetts 02142, on the other hand.

This memorandum has been prepared in connection with Penterra's proposed acquisition of one hundred percent (100%) of the outstanding equity of Caliston via a one-step merger (the "Proposed Transaction") for an aggregate equity value of Nine Hundred Twenty-Five Million Dollars ($925,000,000), with consideration to be paid in a mix of seventy-five percent (75%) cash and twenty-five percent (25%) Penterra common stock, together with up to One Hundred Twenty-Five Million Dollars ($125,000,000) in contingent value rights ("CVRs") tied to specified regulatory milestones. The Proposed Transaction, if consummated, would result in Caliston becoming a wholly-owned subsidiary of Penterra.

This memorandum is prepared at the direction of, and for the exclusive use of, the Special Committee of the Board of Directors of Penterra (the "Special Committee"), which was constituted by unanimous written consent of the disinterested directors of the Penterra board on June 2, 2023. The Special Committee was formed to evaluate the Proposed Transaction, negotiate the terms thereof, and make a recommendation to the full Board of Directors, in light of the conflicts of interest identified herein. This memorandum is intended to support the Special Committee's evaluation of the conflicts of interest implicated by the Proposed Transaction under Section 144 of the Delaware General Corporation Law (the "DGCL") and the entire fairness doctrine as articulated by the Delaware Court of Chancery and the Delaware Supreme Court, including in such seminal decisions as Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983), Kahn v. Lynch Communication Systems, Inc., 638 A.2d 1110 (Del. 1994), and their progeny.

The scope of our review encompasses all nine (9) current members of the Penterra Board of Directors, the Company's named executive officers — specifically, Chief Executive Officer Dr. Marcus Hale, Chief Financial Officer Priya Anand, and General Counsel and Corporate Secretary Lawrence Whittaker — and all other persons subject to Section 16 reporting obligations under the Securities Exchange Act of 1934, as amended (collectively, "Penterra Insiders"). We have reviewed the foregoing Penterra Insiders against Caliston's capitalization table, board of directors roster, management team, institutional investors, and professional advisors, including legal counsel, financial advisors, and independent auditors.

In preparing this memorandum, we have relied upon the following principal sources of information:

(a) Penterra's definitive proxy statements filed with the Securities and Exchange Commission for fiscal years 2020, 2021, and 2022, including the director and executive compensation disclosures, related-party transaction disclosures, and director independence determinations contained therein;

(b) Section 16 filings (Forms 3, 4, and 5) submitted by Penterra Insiders with the Securities and Exchange Commission;

(c) Director and officer questionnaires completed by each member of the Penterra Board of Directors and each named executive officer in connection with the Special Committee's independence determination process, copies of which are on file with this firm;

(d) Materials produced by Caliston in the electronic data room established in connection with the Proposed Transaction, the initial production of which was received on June 28, 2023, supplemented by preliminary capitalization and governance documents that were provided informally to Calderwood & Harkness LLP prior to the formal data room opening for purposes of facilitating this review;

(e) Publicly available records, including corporate filings with the Delaware Secretary of State, news reports, and regulatory filings; and

(f) Interviews conducted by Calderwood & Harkness LLP with Penterra's General Counsel, Lawrence Whittaker, on June 8, 2023 and June 14, 2023, regarding the Company's knowledge of any relationships between Penterra Insiders and Caliston stakeholders, as well as the timeline and circumstances of Dr. Hale's disclosure of his Caliston investment.

We note that our review is ongoing and that this memorandum reflects the state of our knowledge as of the date hereof. Should additional relationships or interests come to light during the pendency of due diligence or otherwise, we will promptly supplement this memorandum and bring any material findings to the attention of the Special Committee.

II. Executive Summary of Findings

Based on our comprehensive review of the sources described above, we have identified two material related-party relationships between Penterra Insiders and Caliston stakeholders. We have also identified one additional Penterra director whose recusal from Special Committee deliberations is warranted on a precautionary basis due to his lack of independence from one of the conflicted insiders. Each is summarized below.

First, Dr. Marcus Hale, who serves as Chairman and Chief Executive Officer of Penterra, holds a twenty-eight and one-half percent (28.5%) equity interest in Caliston, which he acquired through personal investments totaling Forty-Two Million Dollars ($42,000,000) across Caliston's Seed, Series A, and Series B financing rounds. Dr. Hale has also served as a non-voting board observer at Caliston since 2018, during which time he has attended fourteen (14) of sixteen (16) Caliston board meetings. At the proposed aggregate equity value of $925,000,000, Dr. Hale's implied proceeds from the merger would be approximately Two Hundred Sixty-Three Million Six Hundred Twenty-Five Thousand Dollars ($263,625,000), representing an implied gain of approximately Two Hundred Twenty-One Million Six Hundred Twenty-Five Thousand Dollars ($221,625,000) over his aggregate cost basis. If the CVR milestone is achieved, Dr. Hale would receive an additional Thirty-Five Million Six Hundred Twenty-Five Thousand Dollars ($35,625,000), bringing his maximum total implied proceeds to Two Hundred Ninety-Nine Million Two Hundred Fifty Thousand Dollars ($299,250,000). This interest is, by any measure, deeply material and creates a direct and substantial conflict of interest in Dr. Hale's evaluation of the Proposed Transaction.

Second, Angela Whitmore, who serves as a non-independent director of Penterra and concurrently holds the position of Executive Vice President, Commercial Operations, is the spouse of Dr. Evan Whitmore. Dr. Evan Whitmore serves as Head of Clinical Development at Caliston and is a member of Caliston's board of directors. Through his Caliston equity stake (held as part of the founders/management equity pool), Dr. Evan Whitmore would receive merger consideration in the Proposed Transaction, creating an indirect financial interest for Angela Whitmore. The spousal relationship also gives rise to a natural presumption that Angela Whitmore cannot exercise fully independent judgment with respect to a transaction in which her spouse has a material financial and professional interest.

Third, while no direct equity interest in Caliston or other material relationship with Caliston stakeholders has been identified with respect to Raymond Tusk, a non-independent member of the Penterra board, Mr. Tusk has been classified as non-independent due to his relationship with Dr. Hale (he is identified as a Hale appointee to the Board). As a precautionary measure, and to preserve the integrity of the Special Committee process, Mr. Tusk has been recused from all Special Committee deliberations and was excluded from the board vote establishing the Special Committee.

No other Penterra directors or officers hold equity interests in Caliston or have material relationships with Caliston stakeholders based on our review to date. The remaining six (6) members of the Penterra Board of Directors (three of whom serve on the Special Committee and three of whom do not) and the remaining named executive officers (CFO Priya Anand and General Counsel Lawrence Whittaker) have been reviewed and cleared of any disqualifying interests or relationships.

Recommendation. Both Dr. Hale and Angela Whitmore, together with Raymond Tusk, have been properly recused from Special Committee deliberations pursuant to the Board Resolution dated June 2, 2023, and the Independence Protocol and Information Barrier Policy (the "Independence Protocol") adopted by the Special Committee on the same date. We recommend that these recusal measures remain in full force throughout the pendency of the Special Committee's evaluation of the Proposed Transaction and that the Special Committee continue to operate in accordance with the procedural safeguards detailed in Section VII of this memorandum.

III. Detailed Analysis of Identified Relationships

A. Dr. Marcus Hale — Chairman & Chief Executive Officer, Penterra Pharmaceuticals Corp.

1. Background and Position at Penterra. Dr. Marcus Hale has served as Chairman of the Board of Directors and Chief Executive Officer of Penterra since the Company's founding. Dr. Hale co-founded Penterra in 2004 and has served continuously as a member of the Board of Directors since the Company's inception. He has served as Chief Executive Officer since 2004 and was elected Chairman of the Board in 2008 upon the retirement of the Company's founding Chairman.

Dr. Hale holds an M.D./Ph.D. from Kellmore University, where he conducted his doctoral research in molecular pharmacology. Prior to founding Penterra, Dr. Hale held research positions at the National Institutes of Health and served as a principal investigator at the Kellmore University Medical Center. He is widely recognized as a leader in the biopharmaceutical industry and has been instrumental in building Penterra from an early-stage research venture into a publicly traded pharmaceutical company with a market capitalization of approximately $7.8 billion as of the date hereof.

As of the most recent proxy statement, Dr. Hale holds 2,140,000 shares of Penterra common stock, representing approximately 1.8% of the approximately 121,400,000 shares of Penterra common stock outstanding. In addition, Dr. Hale holds unvested restricted stock units and stock options that, when combined with his outstanding shares, represent additional economic exposure to Penterra's equity performance, the details of which are set forth in the Company's most recent proxy statement.

Dr. Hale's compensation for fiscal year 2022 consisted of a base salary of $3,200,000 and total compensation (inclusive of equity awards, cash bonuses, and other benefits) of $5,800,000, as reported in the Summary Compensation Table of Penterra's most recent proxy statement filed with the Securities and Exchange Commission.

2. Equity Interest in Caliston BioSciences. Dr. Hale holds a twenty-eight and one-half percent (28.5%) equity interest in Caliston BioSciences, Inc., making him the single largest individual stockholder of Caliston. This equity interest was acquired through a series of personal investments totaling Forty-Two Million Dollars ($42,000,000), deployed across three of Caliston's four completed financing rounds:

(a) Seed Round. Dr. Hale participated in Caliston's Seed round at or near the time of Caliston's founding in 2017. The precise date and amount of this investment are set forth in the timeline attached as Exhibit C to this memorandum. The Seed round represented the earliest institutional and personal capital raised by Caliston's founders.

(b) Series A Round. Dr. Hale participated in Caliston's Series A financing round, again investing personal funds. The Series A round involved additional institutional participation and resulted in a material step-up in Caliston's valuation relative to the Seed round.

(c) Series B Round. Dr. Hale participated in Caliston's Series B financing round. The Series B round was completed prior to October 2021 and further expanded Caliston's capitalization base.

To date, Caliston has raised a total of $347,000,000 in equity financing across its Seed, Series A, Series B, and Series C rounds. Caliston's most recent private valuation was $680,000,000 on a post-money basis, established in connection with the Series C financing round completed in October 2021. The Series C round was led by Ridgeline Ventures, LP (Ava Lindström, Managing Partner).

Notably, Dr. Hale did not participate in the Series C round. The reasons for Dr. Hale's non-participation are not entirely clear from the available record, though we understand from our interview with Mr. Whittaker that Dr. Hale had by that time accumulated a substantial position and may have determined that additional investment was not warranted. We have not independently verified the reasons for Dr. Hale's non-participation, nor have we been able to interview Dr. Hale directly given his recusal from the Special Committee process and the information barrier currently in effect.

3. Financial Interest in the Proposed Transaction. The Proposed Transaction contemplates an aggregate equity value for Caliston of Nine Hundred Twenty-Five Million Dollars ($925,000,000), consisting of cash and Penterra common stock in a 75%/25% mix, together with CVRs with an aggregate face value of $125,000,000.

At the proposed $925,000,000 aggregate equity value, Dr. Hale's 28.5% equity stake in Caliston implies the following financial outcomes:

• Implied Total Merger Proceeds (excluding CVR): $263,625,000 (calculated as 28.5% × $925,000,000)

• Implied Cash Component: $197,718,750 (calculated as 75% × $263,625,000)

• Implied Penterra Common Stock Component: $65,906,250 (calculated as 25% × $263,625,000)

• Cost Basis: $42,000,000 (aggregate personal investment across Seed, Series A, and Series B rounds)

• Implied Gain (excluding CVR): $221,625,000 (calculated as $263,625,000 − $42,000,000)

• Implied Return Multiple (excluding CVR): Approximately 6.3x cost basis

In addition, if the CVR milestone is achieved — specifically, if Caliston's lead asset CLT-4019 receives approval from the U.S. Food and Drug Administration on or before December 31, 2026 — Dr. Hale would be entitled to receive an additional Thirty-Five Million Six Hundred Twenty-Five Thousand Dollars ($35,625,000), calculated as 28.5% of the $125,000,000 aggregate CVR value.

Accordingly, Dr. Hale's maximum total implied proceeds from the Proposed Transaction, inclusive of the CVR, would be $299,250,000 (calculated as $263,625,000 + $35,625,000).

The magnitude of Dr. Hale's financial interest in the Proposed Transaction is extraordinary by any standard. His implied gain of $221,625,000 (or up to $257,250,000 inclusive of the CVR) dwarfs his annual compensation as Penterra's Chairman and CEO ($5,800,000 total compensation for fiscal year 2022) by a factor of approximately 38x to 44x. This disparity underscores the materiality of Dr. Hale's conflict and the importance of ensuring that the Proposed Transaction is evaluated on its merits by directors who do not share Dr. Hale's financial incentives.

We also note that, because a portion of the consideration would be paid in Penterra common stock, Dr. Hale would receive additional Penterra shares in the merger, augmenting his existing 1.8% ownership stake in the Company. The precise number of additional Penterra shares Dr. Hale would receive will depend on the per-share value of Penterra common stock at the time of closing, which has not yet been determined. In any event, the stock component creates an alignment between Dr. Hale's interests as a Caliston stockholder receiving merger consideration and his interests as a Penterra stockholder — an alignment that may create incentives that are distinct from, and potentially adverse to, those of the Penterra stockholders who are not receiving Caliston merger consideration.

4. Board Observer Role at Caliston. Since 2018, Dr. Hale has held a non-voting board observer seat at Caliston BioSciences. During the period from 2018 to the present, Dr. Hale has attended fourteen (14) of sixteen (16) Caliston board meetings, reflecting an attendance rate of approximately eighty-seven and one-half percent (87.5%). A summary of Dr. Hale's attendance record is attached as Exhibit D to this memorandum.

As a board observer, Dr. Hale has had the right to attend all regular and special meetings of the Caliston Board of Directors, to receive all board materials distributed to directors (subject to any recusals or conflicts at the Caliston board level), and to participate in board-level discussions. While a board observer does not hold voting rights and is not formally a fiduciary of the observed company, the observer role affords substantial access to the company's most sensitive non-public information. In the case of Caliston, this includes:

(a) Non-public financial information, including detailed revenue projections, cash flow analyses, burn rate data, and financing plans;

(b) Clinical development data, including interim and topline data from Caliston's pipeline programs, and in particular the Phase 2b trial for CLT-4019 (IND 158429), which is the lead asset and the primary driver of the Proposed Transaction's value;

(c) Strategic plans, including Caliston's long-term business strategy, partnership and licensing discussions, and any prior indications of interest from potential acquirers; and

(d) Board-level deliberations regarding corporate governance, management compensation, intellectual property strategy, and competitive positioning.

Dr. Hale's access to this non-public information raises significant concerns regarding informational asymmetry. Specifically, Dr. Hale possesses information about Caliston's business, prospects, and value that is not available to the other members of the Penterra Board of Directors or to Penterra's independent financial advisor. This informational advantage could, in theory, have influenced Dr. Hale's assessment of the appropriate acquisition price and deal terms, and could create a risk that Dr. Hale's proposal was informed by insider knowledge of Caliston's clinical pipeline, including any favorable or unfavorable developments that have not yet been publicly disclosed.

The existence of the information barrier established under the Independence Protocol is designed to mitigate this concern by ensuring that the Special Committee's evaluation of the Proposed Transaction is conducted independently of Dr. Hale and without reliance on information channeled through Dr. Hale. Nevertheless, the Special Committee should remain vigilant regarding the potential for informational leakage, and should rely exclusively on the independent due diligence conducted by Calderwood & Harkness LLP and Thorngate Partners LLC, as well as materials produced directly by Caliston through the formal data room process.

5. Disclosure History. The timing and circumstances of Dr. Hale's disclosure of his Caliston equity interest to the Penterra Board of Directors warrant careful attention. Based on our review, the relevant timeline is as follows:

(a) Dr. Hale's investments in Caliston span the Seed, Series A, and Series B financing rounds. While the precise dates of these investments are set forth in Exhibit C, we note that the earliest investment (the Seed round) would have been made at or around the time of Caliston's founding in 2017, and the most recent investment (the Series B round) was completed prior to October 2021. Accordingly, Dr. Hale held his Caliston equity interest for a period of at least approximately sixteen (16) months — and potentially as long as approximately six (6) years — before disclosing it to the Penterra Board.

(b) Dr. Hale did not disclose his Caliston equity interest to the Penterra Board of Directors until February 14, 2023, when he first proposed the acquisition of Caliston at a regular meeting of the Board of Directors. According to Mr. Whittaker, Dr. Hale presented the Caliston opportunity as a strategic acquisition that would complement Penterra's existing pipeline, and disclosed his personal equity interest in Caliston at that time. Prior to February 14, 2023, no disclosure of the Caliston investment had been made to the Board, to the Company's General Counsel, or in any Section 16 filing (which would not have been required, as Caliston is a private company and Dr. Hale's interest does not constitute a Penterra equity transaction).

(c) The Board discussed the potential conflicts of interest arising from Dr. Hale's Caliston interest at a subsequent meeting on March 8, 2023. At that meeting, the Board determined that independent governance counsel should be retained to advise on the appropriate procedural framework for evaluating the Proposed Transaction in light of Dr. Hale's conflict.

(d) On April 12, 2023, the Board retained Alcott, Barringer & Cole LLP (Victoria Shen, M&A Partner) to serve as independent governance counsel and to advise the Board on the formation and mandate of a Special Committee.

(e) On May 15, 2023, the Board approved the formation of a Special Committee, subject to the identification and confirmation of independent directors to serve thereon.

(f) On June 2, 2023, the Special Committee was formally constituted by unanimous written consent of the disinterested directors, with Diane Prescott as Chair, James Okafor, and Dr. Helen Ng as members. On the same date, the Independence Protocol and Information Barrier Policy was adopted, and Dr. Hale executed the Voting and Recusal Agreement described below.

The delay between the earliest date on which Dr. Hale held a Caliston equity interest (2017, at the latest) and the date of his disclosure to the Penterra Board (February 14, 2023) is notable. While the Company's annual director and officer questionnaires request disclosure of outside business interests and potential conflicts, and while Penterra's Code of Ethics requires prompt disclosure of material conflicts of interest, the available record does not reflect any prior disclosure by Dr. Hale of his Caliston investment. We have not been able to determine whether Dr. Hale's annual questionnaire responses affirmatively omitted the Caliston interest or whether the questionnaire format did not specifically elicit disclosures of personal investments in private companies. We recommend that the Special Committee consider whether to request a supplemental interview or written statement from Dr. Hale (through counsel) regarding the circumstances of the delayed disclosure, to the extent the Special Committee deems such inquiry relevant to its evaluation of Dr. Hale's good faith and the process leading to the Proposed Transaction.

6. Conflict Classification. Based on the foregoing, Dr. Hale is classified as an "interested director" under DGCL §144 by reason of his direct and material financial interest in Caliston. Specifically:

(a) Dr. Hale holds a 28.5% equity interest in Caliston, the target company in the Proposed Transaction, and would receive implied proceeds of $263,625,000 (or up to $299,250,000 inclusive of CVRs) upon consummation of the merger.

(b) Dr. Hale has served as a non-voting board observer at Caliston since 2018, giving him access to Caliston's non-public information and creating an informational advantage vis-à-vis the other Penterra directors.

(c) Dr. Hale's dual position as Penterra's Chairman and CEO, on the one hand, and as Caliston's largest individual stockholder and a board observer, on the other, places him squarely on both sides of the Proposed Transaction. He has a fiduciary duty to Penterra's stockholders to negotiate the lowest possible acquisition price and the most favorable terms for Penterra, while simultaneously holding a personal financial interest in maximizing the merger consideration payable to Caliston's stockholders, including himself.

In recognition of these conflicts, Dr. Hale has executed a Voting and Recusal Agreement dated June 2, 2023 (the "VRA"), pursuant to which he has committed to the following:

(i) Recuse himself from all deliberations of the Board of Directors and any committee thereof regarding the Proposed Transaction, including the Special Committee;

(ii) Abstain from voting on the merger agreement, the CVR agreement, and any ancillary transaction documents at the Board level;

(iii) Refrain from communicating with any member of the Special Committee regarding the Proposed Transaction, except through counsel and only to the extent authorized by the Special Committee Chair;

(iv) Refrain from accessing or reviewing any materials in the Project Coriander workspace or any other segregated repository established in connection with the Special Committee's work; and

(v) Cooperate with reasonable requests for information from the Special Committee or its advisors, to the extent such requests are communicated through Calderwood & Harkness LLP and do not compromise the independence of the Special Committee's process.

The VRA is designed to ensure that Dr. Hale does not exert undue influence over the Special Committee's evaluation of the Proposed Transaction and that the Special Committee retains sole and exclusive authority over all aspects of the transaction, including the authority to decline to pursue the acquisition (i.e., "say no" power).

B. Angela Whitmore — Director (Non-Independent) and EVP, Commercial Operations, Penterra Pharmaceuticals Corp.

1. Background and Position at Penterra. Angela Whitmore serves as a non-independent member of the Penterra Board of Directors and concurrently holds the position of Executive Vice President, Commercial Operations at Penterra. In her executive capacity, Ms. Whitmore oversees Penterra's commercial organization, including sales, marketing, market access, and commercial strategy for the Company's marketed products.

Ms. Whitmore's equity holdings in Penterra are to be confirmed via her director and officer questionnaire response, which was received but is currently under review for completeness. Based on publicly available Section 16 filings, Ms. Whitmore holds shares of Penterra common stock and unvested equity awards. Importantly, Ms. Whitmore's Penterra equity holdings do not independently trigger Section 144 interest with respect to Caliston; her conflict arises solely from her spousal relationship with a Caliston insider, as described below.

2. Spousal Relationship with Dr. Evan Whitmore. Angela Whitmore is the spouse of Dr. Evan Whitmore. Dr. Evan Whitmore serves in the following capacities at Caliston BioSciences:

(a) Head of Clinical Development. Dr. Evan Whitmore holds the position of Head of Clinical Development at Caliston, in which capacity he is responsible for overseeing the design, execution, and management of Caliston's clinical trial programs. This includes direct responsibility for the Phase 2b clinical trial for CLT-4019 (IND 158429), Caliston's lead pipeline asset and the primary driver of the Proposed Transaction's value. CLT-4019 is an investigational therapy currently in Phase 2b development, and the achievement of the CVR milestone (FDA approval by December 31, 2026) is directly within the scope of Dr. Evan Whitmore's professional responsibilities at Caliston.

(b) Member of the Board of Directors. Dr. Evan Whitmore serves as a member of the Caliston Board of Directors. In this capacity, he participates in board-level decisions regarding Caliston's corporate strategy, financing activities, and, presumably, the evaluation of the Proposed Transaction from Caliston's perspective. As a Caliston director, Dr. Evan Whitmore owes fiduciary duties to Caliston and its stockholders, and his interests are aligned with maximizing the value received by Caliston's stockholders in the merger.

Dr. Evan Whitmore holds equity in Caliston as part of the founders/management equity pool. According to the preliminary capitalization information provided by Caliston, the founders/management equity pool represents 30.5% of Caliston's aggregate outstanding equity, allocated as follows:

• Dr. Nadia Sorensen (CEO, Co-Founder): 14.2%

• Dr. Raj Malhotra (CSO, Co-Founder): 9.8%

• Other management/founders (includes Dr. Evan Whitmore): 6.5%

Dr. Evan Whitmore's individual equity stake falls within the "other management/founders" category, which holds an aggregate 6.5% of Caliston's outstanding equity. The precise breakdown of individual holdings within this category has not yet been provided in the Caliston data room, and we have requested a more granular capitalization table that would identify Dr. Evan Whitmore's specific equity percentage. In any event, as a Caliston stockholder, Dr. Evan Whitmore would receive merger consideration in the Proposed Transaction, which at the proposed $925,000,000 aggregate equity value could represent a meaningful sum depending on the size of his individual allocation within the 6.5% pool.

As a result of her spousal relationship with Dr. Evan Whitmore, Angela Whitmore has an indirect financial interest in the outcome of the Proposed Transaction. The consummation of the merger at the proposed terms would result in Dr. Evan Whitmore receiving cash and Penterra common stock as merger consideration, the proceeds of which would inure to the benefit of the Whitmore marital community (or to Dr. Evan Whitmore individually, depending on the applicable property regime). In addition, the spousal relationship creates a natural presumption that Angela Whitmore may not be able to exercise fully independent and disinterested judgment with respect to a transaction involving her spouse's employer, a company on whose board her spouse sits, and a transaction from which her spouse stands to derive significant financial benefit.

3. Conflict Classification. Angela Whitmore's spousal relationship with a member of Caliston's Board of Directors and a senior officer of Caliston creates a conflict of interest that, while indirect in nature, is sufficient to disqualify her from service on the Special Committee and from participation in the Special Committee's deliberations regarding the Proposed Transaction.

Delaware courts have recognized that familial relationships — and spousal relationships in particular — can compromise a director's ability to act independently with respect to a conflicted transaction. See, e.g., In re Ostrander Corporation. Derivative Litig., 824 A.2d 917 (Del. Ch. 2003) (recognizing that close personal relationships can compromise independence); Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040 (Del. 2004) (discussing the standard for directorial independence). While the spousal relationship alone may not establish a direct financial interest under DGCL §144, it is sufficient to raise concerns about Angela Whitmore's independence with respect to the Proposed Transaction.

Accordingly, Angela Whitmore has been excluded from all Special Committee deliberations, materials, and communications under the Independence Protocol dated June 2, 2023. She was recused from the Board vote establishing the Special Committee, along with Dr. Hale and Raymond Tusk. She does not have access to the Project Coriander workspace and is not to receive any materials produced by or for the Special Committee or its advisors without the prior written authorization of the Special Committee Chair.

C. Raymond Tusk — Director (Non-Independent), Penterra Pharmaceuticals Corp.

1. Background. Raymond Tusk serves as a non-independent member of the Penterra Board of Directors. Mr. Tusk has been identified as a Hale appointee to the Board — that is, Mr. Tusk was nominated to the Board at the suggestion or direction of Dr. Hale, and his continued service on the Board is understood to be attributable, at least in part, to his relationship with Dr. Hale.

Our review has not identified any direct equity interest held by Mr. Tusk in Caliston BioSciences. We have also not identified any familial relationships, employment relationships, or other material business relationships between Mr. Tusk and any Caliston stakeholder. Mr. Tusk's director and officer questionnaire, which was received and reviewed, confirmed the absence of any such relationships.

2. Basis for Recusal. Notwithstanding the absence of a direct relationship between Mr. Tusk and Caliston, Mr. Tusk has been classified as non-independent for purposes of the Proposed Transaction due to his relationship with Dr. Hale. The characterization of Mr. Tusk as a "Hale appointee" raises concerns that Mr. Tusk may not be able to exercise fully independent judgment with respect to a transaction in which Dr. Hale has a substantial personal financial interest. Delaware law recognizes that a director who has a sufficiently close relationship with an interested party may lack the independence necessary to evaluate a conflicted transaction disinterestedly. See, e.g., In re MFW S'holders Litig., 67 A.3d 496 (Del. Ch. 2013), aff'd sub nom. Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014) (discussing the prerequisites for cleansing of a conflicted controller transaction, including the requirement of a genuinely independent special committee).

As a precautionary measure, and to ensure the integrity and credibility of the Special Committee process, Mr. Tusk has been recused from all Special Committee deliberations. He was excluded from the Board vote establishing the Special Committee, and he is not a member of the Special Committee. Mr. Tusk does not have access to the Project Coriander workspace and is excluded from all materials and communications related to the Special Committee's evaluation of the Proposed Transaction.

We believe that Mr. Tusk's precautionary recusal is appropriate and strengthens the procedural posture of the Special Committee's process, even though no direct conflict has been identified with respect to Mr. Tusk personally.

IV. Review of Other Penterra Directors and Officers

A. Independent Directors (Special Committee Members)

The Special Committee is composed of three independent directors of Penterra, each of whom has been reviewed and confirmed as independent for purposes of the Proposed Transaction.

1. Diane Prescott — Special Committee Chair. Diane Prescott serves as an independent member of the Penterra Board of Directors and has been designated as Chair of the Special Committee. Ms. Prescott is the former Chief Executive Officer of Windbridge Health Systems, Inc., a publicly traded healthcare services company, where she served as CEO from 2008 to 2019. She has served on the Penterra Board since 2020.

Our review has confirmed that Ms. Prescott does not hold any equity interest in Caliston BioSciences. We have identified no familial, employment, consulting, or other business relationships between Ms. Prescott and any Caliston stakeholder, including Caliston's directors, officers, employees, equity holders, or professional advisors. Ms. Prescott's Director Independence Questionnaire was received and reviewed, and a summary memorandum confirming her independence was prepared and dated June 5, 2023.

Ms. Prescott's independence is further supported by the absence of any economic relationship between Ms. Prescott and Dr. Hale outside of their mutual service on the Penterra Board, and by the absence of any social, familial, or professional ties that would compromise her ability to evaluate the Proposed Transaction independently.

2. James Okafor — Special Committee Member. James Okafor serves as an independent member of the Penterra Board of Directors and as a member of the Special Committee. Mr. Okafor is a retired Managing Director of Fielding Capital Partners, LLC, a healthcare-focused private equity firm, where he spent over twenty years advising on and executing transactions in the life sciences sector. He has served on the Penterra Board since 2018.

Our review has confirmed that Mr. Okafor does not hold any equity interest in Caliston BioSciences. We have identified no familial, employment, consulting, or other business relationships between Mr. Okafor and any Caliston stakeholder. Given Mr. Okafor's extensive career in healthcare private equity, we conducted a targeted review of whether Mr. Okafor has any past or present relationship with Ridgeline Ventures, LP (Ava Lindström, Managing Partner), which holds a 22.3% equity interest in Caliston, or with Meridian Life Sciences Fund III, LP (Tomás Reyes, Managing Partner), which holds an 18.7% equity interest in Caliston. No such relationship was identified. Mr. Okafor's Director Independence Questionnaire was received and reviewed, and his independence has been confirmed.

3. Dr. Helen Ng — Special Committee Member. Dr. Helen Ng serves as an independent member of the Penterra Board of Directors and as a member of the Special Committee. Dr. Ng is a Professor of Pharmacology at Wexford University and a former member of an advisory committee to the U.S. Food and Drug Administration. She has served on the Penterra Board since 2021.

Our review has confirmed that Dr. Ng does not hold any equity interest in Caliston BioSciences. We have identified no familial, employment, consulting, or other business relationships between Dr. Ng and any Caliston stakeholder. Given Dr. Ng's academic background and FDA advisory experience, we conducted a targeted review of whether Dr. Ng has any past or present academic, consulting, or collaborative relationships with members of Caliston's scientific team, including Dr. Nadia Sorensen (CEO and Co-Founder), Dr. Raj Malhotra (Chief Scientific Officer and Co-Founder), and Dr. Evan Whitmore (Head of Clinical Development). No such relationships were identified. Dr. Ng's Director Independence Questionnaire was received and reviewed, and her independence has been confirmed.

B. Other Independent Directors (Not on Special Committee)

In addition to the three Special Committee members, three additional independent directors serve on Penterra's nine-member Board of Directors, bringing the total number of independent directors to six (6) out of nine (9). Director and officer questionnaires and a review of publicly available records confirm that none of the three remaining independent directors holds any equity interest in Caliston BioSciences, and none has any material familial, employment, consulting, or other business relationship with any Caliston stakeholder that would give rise to a conflict of interest or compromise such director's independence with respect to the Proposed Transaction.

While these three additional independent directors are not members of the Special Committee, they remain eligible to participate in any full Board vote on the Proposed Transaction to the extent such vote is required following the Special Committee's recommendation, subject to any further recusal determinations that may be made at that time.

C. Named Executive Officers

1. Priya Anand — Chief Financial Officer. Priya Anand serves as Chief Financial Officer of Penterra. Our review has confirmed that Ms. Anand does not hold any equity interest in Caliston BioSciences. We have identified no familial, employment, consulting, or other business relationships between Ms. Anand and any Caliston stakeholder. Ms. Anand completed a director and officer questionnaire, and no conflicts of interest were identified.

We note that Ms. Anand will be involved in the Proposed Transaction in her management capacity, including with respect to financing arrangements, financial due diligence, and integration planning. This management-level involvement does not give rise to a conflict of interest, and Ms. Anand may continue to perform her duties in connection with the Proposed Transaction in the ordinary course, subject to the direction of the Special Committee and the information barrier protocols applicable to Dr. Hale, Angela Whitmore, and Raymond Tusk.

2. Lawrence Whittaker — General Counsel and Corporate Secretary. Lawrence Whittaker serves as General Counsel and Corporate Secretary of Penterra. Our review has confirmed that Mr. Whittaker does not hold any equity interest in Caliston BioSciences. We have identified no familial, employment, consulting, or other business relationships between Mr. Whittaker and any Caliston stakeholder. Mr. Whittaker completed a director and officer questionnaire, and no conflicts of interest were identified.

In his capacity as Corporate Secretary, Mr. Whittaker prepared the Board materials and facilitated the process by which the Special Committee was formed, including the drafting of the Board Resolution and the coordination of the independence determination process. Mr. Whittaker has also served as a point of contact for Calderwood & Harkness LLP on procedural matters related to the Special Committee's formation and operation. This coordination role is permitted under the Independence Protocol, provided that Mr. Whittaker does not serve as a conduit for communications between the recused insiders (Dr. Hale, Angela Whitmore, or Raymond Tusk) and the Special Committee regarding the substantive evaluation of the Proposed Transaction.

V. Review of Caliston Stakeholders and Advisors for Cross-Relationships

A. Caliston Major Equity Holders

The following table sets forth the major equity holders of Caliston BioSciences, together with their equity interests and any identified relationships with Penterra Insiders:

With respect to the institutional investors, we note the following:

(a) Ridgeline Ventures, LP is a life sciences-focused venture capital firm based in San Francisco, California. Ava Lindström serves as Managing Partner. Ridgeline led Caliston's Series C financing round in October 2021. Our review did not identify any relationship between Ridgeline Ventures or Ms. Lindström and any Penterra Insider. Ridgeline Ventures is not an investor in Penterra common stock based on our review of Penterra's most recent proxy statement and institutional ownership filings.

(b) Meridian Life Sciences Fund III, LP is a healthcare-focused investment fund based in New York, New York. Tomás Reyes serves as Managing Partner. Our review did not identify any relationship between Meridian Life Sciences Fund III or Mr. Reyes and any Penterra Insider. Meridian Life Sciences Fund III is not an investor in Penterra common stock based on our review of available ownership data.

B. Caliston's Professional Advisors

We have reviewed Caliston's professional advisors for any cross-relationships with Penterra Insiders. The results of that review are as follows:

(a) Legal Counsel: Caliston is represented by Whitfield Graves LLP (Kenneth Pratt, Corporate/Life Sciences Partner), One Federal Street, Suite 2600, Boston, Massachusetts 02110. We have not identified any relationship between Whitfield Graves LLP or Mr. Pratt and any Penterra Insider. Whitfield Graves LLP does not currently represent Penterra in any matter, and we are not aware of any prior representation of Penterra by that firm.

(b) Financial Advisor: Caliston has engaged Fendowell Sinclair & Co. (Sandra Wu, Managing Director), 200 Clarendon Street, 50th Floor, Boston, Massachusetts 02116, as its financial advisor in connection with the Proposed Transaction. We have not identified any relationship between Fendowell Sinclair & Co. or Ms. Wu and any Penterra Insider. Fendowell Sinclair & Co. does not currently advise Penterra and has not done so within the past five years based on our review.

(c) Independent Auditor: Caliston's financial statements are audited by Brentmoor Advisors LLP, 125 Summer Street, Suite 800, Boston, Massachusetts 02110. We have not identified any relationship between Brentmoor Advisors LLP and any Penterra Insider. Brentmoor Advisors LLP does not serve as Penterra's auditor or provide any services to Penterra.

C. Penterra's Professional Advisors Cross-Check

We have also reviewed Penterra's own professional advisors for any cross-relationships with Caliston or its stakeholders:

(a) Regular Outside Counsel: Penterra's regular outside counsel is Alcott, Barringer & Cole LLP (Victoria Shen, M&A Partner). As noted above, Alcott, Barringer & Cole LLP was retained by the Board on April 12, 2023, to provide initial governance advice in connection with the conflicts identified in the Proposed Transaction and the formation of the Special Committee. Alcott, Barringer & Cole LLP has been recused from advising the Special Committee on the substantive evaluation and negotiation of the Proposed Transaction; that role is filled by Calderwood & Harkness LLP. We have not identified any conflict between Alcott, Barringer & Cole LLP and Caliston or its stakeholders.

(b) Independent Auditor: Penterra's independent auditor is Harwick & Tolliver LLP. We have not identified any relationship between Harwick & Tolliver LLP and Caliston or its stakeholders.

(c) Transfer Agent: Penterra's transfer agent is Columnar Trust Services, Inc. We have not identified any relationship between Columnar Trust Services and Caliston or its stakeholders.

(d) D&O Insurance Carrier: Penterra's directors' and officers' liability insurance is provided by Northpoint Specialty Insurance Company under Policy No. NSI-DO-2023-88412, providing coverage in a $50,000,000 tower. We have not identified any relationship between Northpoint Specialty Insurance Company and Caliston or its stakeholders.

VI. Analysis of Potential Indirect or Undisclosed Relationships

In addition to the specific reviews described in Sections III through V above, we have conducted a broader analysis to identify any indirect, non-obvious, or potentially undisclosed relationships between Penterra Insiders and Caliston stakeholders. The results of that analysis are as follows:

(a) Vendor and Consulting Relationships. We reviewed available records of Penterra's and Caliston's vendor lists, consulting agreements, and joint venture arrangements. This review did not reveal any additional related-party relationships beyond those identified in this memorandum. Specifically, we found no evidence that any Penterra Insider has provided consulting services to Caliston or any Caliston stakeholder, or vice versa.

(b) Common Institutional Investors. We compared the holdings of Penterra's top twenty (20) institutional stockholders (as reported in the most recent proxy statement and institutional ownership filings) against Caliston's investor base. We did not identify any common institutional investors that would create a disabling conflict of interest for any Penterra director or officer. While it is possible that certain institutional investors hold positions in both Penterra common stock and Caliston equity through affiliated fund structures, no such overlapping positions were identified that would compromise the independence of any Penterra Insider or create a conflict requiring disclosure or recusal.

(c) Personal Investments by Other Penterra Officers or Employees. Other than Dr. Hale, no Penterra officer or employee was identified as having made personal investments in Caliston or as having served in any advisory, consulting, or governance capacity at Caliston. This conclusion is based on the director and officer questionnaire responses, our interview with Mr. Whittaker, and our review of Caliston's preliminary capitalization documents.

(d) Caliston's Founding and Early History. Caliston was founded in 2017 by Dr. Nadia Sorensen and Dr. Raj Malhotra. Dr. Hale's investments in Caliston began at the Seed round, contemporaneous with or shortly after Caliston's founding. We have not identified any role played by other Penterra Insiders in Caliston's founding or early financing. The circumstances under which Dr. Hale became aware of the Caliston investment opportunity have not been fully explored; we recommend that the Special Committee consider whether further inquiry into this question is warranted.

In summary, our broader analysis has not revealed any additional related-party relationships beyond the two material relationships (Dr. Hale and Angela Whitmore) and the one precautionary recusal (Raymond Tusk) identified in Section III of this memorandum.

VII. Implications for the Special Committee Process

A. Entire Fairness Considerations

Dr. Hale's 28.5% equity interest in Caliston and his concurrent position as Chairman and Chief Executive Officer of Penterra places the Proposed Transaction squarely within the interested-director framework under DGCL §144 and implicates the entire fairness standard of judicial review. Under Delaware law, where a corporate fiduciary stands on both sides of a transaction — or derives a personal financial benefit from the transaction that is not shared by the stockholders generally — the transaction is subject to entire fairness review unless the procedural protections of DGCL §144 are satisfied and the transaction is approved by a well-functioning special committee of independent directors or by an informed vote of the disinterested stockholders.

The magnitude of Dr. Hale's financial interest makes this case particularly significant. As noted above, Dr. Hale's implied gain from the Proposed Transaction ($221,625,000, or up to $257,250,000 inclusive of CVRs) exceeds his annual total compensation as Penterra's CEO ($5,800,000) by a factor of approximately 38x to 44x. This disparity is sufficient, standing alone, to establish the materiality of Dr. Hale's conflict. The informational asymmetry arising from Dr. Hale's board observer role at Caliston further heightens the risk that the Proposed Transaction may have been proposed at a price or on terms that favor Dr. Hale's interests as a Caliston stockholder over the interests of Penterra's public stockholders.

The Angela Whitmore / Dr. Evan Whitmore spousal relationship, while not creating a direct financial interest for Angela Whitmore as a Penterra Insider, provides additional support for the conclusion that robust procedural protections are necessary. The recusal of Angela Whitmore from the Special Committee process ensures that no member of the body evaluating the Proposed Transaction has a familial relationship with a Caliston director or officer.

B. Procedural Safeguards in Place

The Special Committee and its advisors have implemented the following procedural safeguards to address the conflicts of interest identified in this memorandum and to establish a strong record of fair process:

1. Independent Special Committee. The Special Committee is composed of three fully independent directors — Diane Prescott (Chair), James Okafor, and Dr. Helen Ng — each of whom has been reviewed and confirmed as independent for purposes of the Proposed Transaction. The Special Committee has been granted sole and exclusive authority to evaluate the Proposed Transaction, negotiate the terms thereof, and make a recommendation to the full Board of Directors, including the authority to decline to pursue the acquisition (i.e., "say no" power). The Special Committee's mandate is set forth in the Board Resolution dated June 2, 2023.

2. Independent Legal Counsel. The Special Committee has retained Calderwood & Harkness LLP (Daniel Obi, Working Associate; Renata Vasquez, Responsible Partner) as its independent legal counsel. Calderwood & Harkness LLP does not represent Penterra in any other matter and has no relationship with Dr. Hale, Caliston, or any Caliston stakeholder that would compromise its independence.

3. Independent Financial Advisor. The Special Committee has engaged Thorngate Partners LLC as its independent financial advisor, effective June 16, 2023. Thorngate Partners will provide the Special Committee with an independent valuation analysis of Caliston, an assessment of the fairness of the proposed consideration from a financial point of view, and a fairness opinion if requested by the Special Committee. Thorngate Partners does not have any relationship with Dr. Hale, Caliston, or any Caliston stakeholder that would compromise its independence.

4. Recusal of Conflicted Insiders. Dr. Marcus Hale, Angela Whitmore, and Raymond Tusk have been recused from all Special Committee deliberations, materials, and communications relating to the Proposed Transaction. The recusal is documented in the Board Resolution dated June 2, 2023 and is reinforced by the Voting and Recusal Agreement executed by Dr. Hale on the same date.

5. Information Barrier. An information barrier has been established under the Independence Protocol, including a segregated Project Coriander workspace for the storage and management of all documents, analyses, and communications related to the Special Committee's evaluation of the Proposed Transaction. Access to the Project Coriander workspace is limited to the Special Committee members, Calderwood & Harkness LLP, Thorngate Partners LLC, and such other persons as the Special Committee Chair may authorize in writing. Dr. Hale, Angela Whitmore, Raymond Tusk, and Penterra management personnel who have not been specifically authorized do not have access to the Project Coriander workspace.

6. Recusal of Penterra's Regular Outside Counsel. Alcott, Barringer & Cole LLP (Victoria Shen), Penterra's regular outside counsel, has been recused from advising the Special Committee on the substantive evaluation and negotiation of the Proposed Transaction. Alcott, Barringer & Cole provided initial governance advice in connection with the identification of Dr. Hale's conflict and the formation of the Special Committee, but all advisory functions with respect to the Proposed Transaction are now handled exclusively by Calderwood & Harkness LLP.

C. Recommendations. Based on the findings and analysis set forth in this memorandum, we respectfully offer the following recommendations to the Special Committee:

1. Continue Operating Under the Independence Protocol. The Special Committee should continue to operate under the Independence Protocol and Information Barrier Policy adopted on June 2, 2023, without modification unless circumstances warrant. The procedural safeguards currently in place are well-designed to address the conflicts of interest identified herein and to establish a strong record of fair process that would withstand judicial scrutiny under the entire fairness standard.

2. Route All Communications Through Independent Advisors. All communications with Caliston, its counsel (Whitfield Graves LLP), and its financial advisor (Fendowell Sinclair & Co.) should be routed exclusively through Calderwood & Harkness LLP and Thorngate Partners LLC. Under no circumstances should Dr. Hale, Angela Whitmore, or Raymond Tusk serve as a conduit for communications between the Special Committee and Caliston or its advisors.

3. Monitor for Additional Relationships or Interests. Any additional relationships, affiliations, or financial interests that come to light during the course of due diligence or otherwise should be immediately disclosed to the Special Committee and documented as a supplement to this memorandum. We will continue to review data room productions and other materials as they become available for any indications of previously undisclosed relationships.

4. Maintain This Memorandum as Part of the Process Record. This memorandum should be maintained as part of the Special Committee's formal process record in support of the entire fairness analysis. The memorandum should be updated as warranted to reflect any new information or developments, and all updates should be distributed to the Special Committee members and retained in the Project Coriander workspace.

5. Consider Supplemental Inquiry Regarding Dr. Hale's Disclosure Timeline. As noted in Section III.A.5 above, the delay between the date on which Dr. Hale first acquired his Caliston equity interest and the date on which he disclosed that interest to the Penterra Board is notable. The Special Committee may wish to consider whether a supplemental inquiry — conducted through counsel — into the circumstances of this delayed disclosure would be useful in evaluating the process and good faith surrounding the Proposed Transaction.

VIII. Relationship Matrix (Summary Table)

The following table provides a comprehensive summary of all Penterra Insiders reviewed in this memorandum, together with their roles, any identified Caliston relationships, the nature and extent of any financial interest, and their recusal status:

IX. Exhibits / Attachments

The following exhibits are attached to and incorporated by reference into this memorandum:

Exhibit A: Caliston BioSciences, Inc. — Capitalization Table (summary, as of the most recent available date, based on preliminary data room materials)

Exhibit B: Penterra Pharmaceuticals Corp. — Board of Directors Roster and Independence Classifications (reflecting the independence determinations made in connection with the Special Committee formation process)

Exhibit C: Timeline of Dr. Hale's Investments in Caliston BioSciences (Seed, Series A, and Series B rounds — amounts, dates, and implied equity percentages at time of investment)

Exhibit D: Summary of Dr. Hale's Caliston Board Observer Attendance Record (2018–2023) (reflecting meeting dates, attendance/absence, and any notations regarding recusals from specific agenda items at the Caliston board level)

Exhibits A through D are maintained separately in the Project Coriander workspace and are available to Special Committee members upon request. Due to the sensitive nature of the capitalization and investment data contained in these exhibits, they should not be reproduced or distributed outside of the Special Committee and its authorized advisors.

Certification and Signature block

This memorandum has been prepared by the undersigned in their capacities as counsel to the Special Committee of the Board of Directors of Penterra Pharmaceuticals Corp. in connection with the Proposed Transaction (Project Coriander). The analysis and recommendations set forth herein are based on our review of the sources described in Section I and reflect our professional judgment as of the date hereof. This memorandum is subject to revision and supplementation as additional information becomes available.

Prepared by:

________________________________________

Daniel Obi Working Associate Calderwood & Harkness LLP

Reviewed by:

________________________________________

Renata Vasquez Responsible Partner Calderwood & Harkness LLP

Calderwood & Harkness LLP 1700 Market Street, Suite 3400 Philadelphia, Pennsylvania 19103

C&H Matter No. 1025-00006

Date: June 20, 2023

DISTR

MEMORANDUM
PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
Project Coriander
To: Special Committee of the Board of Directors of Penterra Pharmaceuticals Corp.
Diane Prescott, Chair James Okafor, Member Dr. Helen Ng, Member
From: Daniel Obi, Calderwood & Harkness LLP
(Reviewed by Renata Vasquez, Responsible Partner)
Date: June 20, 2023
Re: Comprehensive Summary of Related-Party Relationships Between Penterra Pharmaceuticals Corp. Insiders and Caliston BioSciences, Inc. Stakeholders
C&H Matter No.: 1025-00006
This memorandum is protected by the attorney-client privilege and constitutes attorney work product prepared in anticipation of litigation or in connection with the provision of legal advice. It is intended solely for the members of the Special Committee identified above and should not be disclosed, distributed, or reproduced without the prior written authorization of the Special Committee Chair. Any unauthorized disclosure may result in a waiver of applicable privileges.
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I. Purpose and Scope
The purpose of this memorandum is to identify, catalog, and analyze all existing relationships, financial interests, and affiliations between the directors, officers, and other insiders of Penterra Pharmaceuticals Corp. ("Penterra" or the "Company") (NYSE: PPHR), a Delaware corporation headquartered at 400 Innovation Drive, Suite 1200, Princeton, New Jersey 08540, on the one hand, and the equity holders, directors, officers, employees, and professional advisors of Caliston BioSciences, Inc. ("Caliston"), a Delaware corporation with its principal office at 88 Harbor Point Road, Cambridge, Massachusetts 02142, on the other hand.
This memorandum has been prepared in connection with Penterra's proposed acquisition of one hundred percent (100%) of the outstanding equity of Caliston via a one-step merger (the "Proposed Transaction") for an aggregate equity value of Nine Hundred Twenty-Five Million Dollars ($925,000,000), with consideration to be paid in a mix of seventy-five percent (75%) cash and twenty-five percent (25%) Penterra common stock, together with up to One Hundred Twenty-Five Million Dollars ($125,000,000) in contingent value rights ("CVRs") tied to specified regulatory milestones. The Proposed Transaction, if consummated, would result in Caliston becoming a wholly-owned subsidiary of Penterra.
This memorandum is prepared at the direction of, and for the exclusive use of, the Special Committee of the Board of Directors of Penterra (the "Special Committee"), which was constituted by unanimous written consent of the disinterested directors of the Penterra board on June 2, 2023. The Special Committee was formed to evaluate the Proposed Transaction, negotiate the terms thereof, and make a recommendation to the full Board of Directors, in light of the conflicts of interest identified herein. This memorandum is intended to support the Special Committee's evaluation of the conflicts of interest implicated by the Proposed Transaction under Section 144 of the Delaware General Corporation Law (the "DGCL") and the entire fairness doctrine as articulated by the Delaware Court of Chancery and the Delaware Supreme Court, including in such seminal decisions as Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983), Kahn v. Lynch Communication Systems, Inc., 638 A.2d 1110 (Del. 1994), and their progeny.
The scope of our review encompasses all nine (9) current members of the Penterra Board of Directors, the Company's named executive officers — specifically, Chief Executive Officer Dr. Marcus Hale, Chief Financial Officer Priya Anand, and General Counsel and Corporate Secretary Lawrence Whittaker — and all other persons subject to Section 16 reporting obligations under the Securities Exchange Act of 1934, as amended (collectively, "Penterra Insiders"). We have reviewed the foregoing Penterra Insiders against Caliston's capitalization table, board of directors roster, management team, institutional investors, and professional advisors, including legal counsel, financial advisors, and independent auditors.
In preparing this memorandum, we have relied upon the following principal sources of information:
(a) Penterra's definitive proxy statements filed with the Securities and Exchange Commission for fiscal years 2020, 2021, and 2022, including the director and executive compensation disclosures, related-party transaction disclosures, and director independence determinations contained therein;
(b) Section 16 filings (Forms 3, 4, and 5) submitted by Penterra Insiders with the Securities and Exchange Commission;
(c) Director and officer questionnaires completed by each member of the Penterra Board of Directors and each named executive officer in connection with the Special Committee's independence determination process, copies of which are on file with this firm;
(d) Materials produced by Caliston in the electronic data room established in connection with the Proposed Transaction, the initial production of which was received on June 28, 2023, supplemented by preliminary capitalization and governance documents that were provided informally to Calderwood & Harkness LLP prior to the formal data room opening for purposes of facilitating this review;
(e) Publicly available records, including corporate filings with the Delaware Secretary of State, news reports, and regulatory filings; and
(f) Interviews conducted by Calderwood & Harkness LLP with Penterra's General Counsel, Lawrence Whittaker, on June 8, 2023 and June 14, 2023, regarding the Company's knowledge of any relationships between Penterra Insiders and Caliston stakeholders, as well as the timeline and circumstances of Dr. Hale's disclosure of his Caliston investment.
We note that our review is ongoing and that this memorandum reflects the state of our knowledge as of the date hereof. Should additional relationships or interests come to light during the pendency of due diligence or otherwise, we will promptly supplement this memorandum and bring any material findings to the attention of the Special Committee.
II. Executive Summary of Findings
Based on our comprehensive review of the sources described above, we have identified two material related-party relationships between Penterra Insiders and Caliston stakeholders. We have also identified one additional Penterra director whose recusal from Special Committee deliberations is warranted on a precautionary basis due to his lack of independence from one of the conflicted insiders. Each is summarized below.
First, Dr. Marcus Hale, who serves as Chairman and Chief Executive Officer of Penterra, holds a twenty-eight and one-half percent (28.5%) equity interest in Caliston, which he acquired through personal investments totaling Forty-Two Million Dollars ($42,000,000) across Caliston's Seed, Series A, and Series B financing rounds. Dr. Hale has also served as a non-voting board observer at Caliston since 2018, during which time he has attended fourteen (14) of sixteen (16) Caliston board meetings. At the proposed aggregate equity value of $925,000,000, Dr. Hale's implied proceeds from the merger would be approximately Two Hundred Sixty-Three Million Six Hundred Twenty-Five Thousand Dollars ($263,625,000), representing an implied gain of approximately Two Hundred Twenty-One Million Six Hundred Twenty-Five Thousand Dollars ($221,625,000) over his aggregate cost basis. If the CVR milestone is achieved, Dr. Hale would receive an additional Thirty-Five Million Six Hundred Twenty-Five Thousand Dollars ($35,625,000), bringing his maximum total implied proceeds to Two Hundred Ninety-Nine Million Two Hundred Fifty Thousand Dollars ($299,250,000). This interest is, by any measure, deeply material and creates a direct and substantial conflict of interest in Dr. Hale's evaluation of the Proposed Transaction.
Second, Angela Whitmore, who serves as a non-independent director of Penterra and concurrently holds the position of Executive Vice President, Commercial Operations, is the spouse of Dr. Evan Whitmore. Dr. Evan Whitmore serves as Head of Clinical Development at Caliston and is a member of Caliston's board of directors. Through his Caliston equity stake (held as part of the founders/management equity pool), Dr. Evan Whitmore would receive merger consideration in the Proposed Transaction, creating an indirect financial interest for Angela Whitmore. The spousal relationship also gives rise to a natural presumption that Angela Whitmore cannot exercise fully independent judgment with respect to a transaction in which her spouse has a material financial and professional interest.
Third, while no direct equity interest in Caliston or other material relationship with Caliston stakeholders has been identified with respect to Raymond Tusk, a non-independent member of the Penterra board, Mr. Tusk has been classified as non-independent due to his relationship with Dr. Hale (he is identified as a Hale appointee to the Board). As a precautionary measure, and to preserve the integrity of the Special Committee process, Mr. Tusk has been recused from all Special Committee deliberations and was excluded from the board vote establishing the Special Committee.
No other Penterra directors or officers hold equity interests in Caliston or have material relationships with Caliston stakeholders based on our review to date. The remaining six (6) members of the Penterra Board of Directors (three of whom serve on the Special Committee and three of whom do not) and the remaining named executive officers (CFO Priya Anand and General Counsel Lawrence Whittaker) have been reviewed and cleared of any disqualifying interests or relationships.
Recommendation. Both Dr. Hale and Angela Whitmore, together with Raymond Tusk, have been properly recused from Special Committee deliberations pursuant to the Board Resolution dated June 2, 2023, and the Independence Protocol and Information Barrier Policy (the "Independence Protocol") adopted by the Special Committee on the same date. We recommend that these recusal measures remain in full force throughout the pendency of the Special Committee's evaluation of the Proposed Transaction and that the Special Committee continue to operate in accordance with the procedural safeguards detailed in Section VII of this memorandum.
III. Detailed Analysis of Identified Relationships
A. Dr. Marcus Hale — Chairman & Chief Executive Officer, Penterra Pharmaceuticals Corp.
1. Background and Position at Penterra.  Dr. Marcus Hale has served as Chairman of the Board of Directors and Chief Executive Officer of Penterra since the Company's founding. Dr. Hale co-founded Penterra in 2004 and has served continuously as a member of the Board of Directors since the Company's inception. He has served as Chief Executive Officer since 2004 and was elected Chairman of the Board in 2008 upon the retirement of the Company's founding Chairman.
Dr. Hale holds an M.D./Ph.D. from Kellmore University, where he conducted his doctoral research in molecular pharmacology. Prior to founding Penterra, Dr. Hale held research positions at the National Institutes of Health and served as a principal investigator at the Kellmore University Medical Center. He is widely recognized as a leader in the biopharmaceutical industry and has been instrumental in building Penterra from an early-stage research venture into a publicly traded pharmaceutical company with a market capitalization of approximately $7.8 billion as of the date hereof.
As of the most recent proxy statement, Dr. Hale holds 2,140,000 shares of Penterra common stock, representing approximately 1.8% of the approximately 121,400,000 shares of Penterra common stock outstanding. In addition, Dr. Hale holds unvested restricted stock units and stock options that, when combined with his outstanding shares, represent additional economic exposure to Penterra's equity performance, the details of which are set forth in the Company's most recent proxy statement.
Dr. Hale's compensation for fiscal year 2022 consisted of a base salary of $3,200,000 and total compensation (inclusive of equity awards, cash bonuses, and other benefits) of $5,800,000, as reported in the Summary Compensation Table of Penterra's most recent proxy statement filed with the Securities and Exchange Commission.
2. Equity Interest in Caliston BioSciences.  Dr. Hale holds a twenty-eight and one-half percent (28.5%) equity interest in Caliston BioSciences, Inc., making him the single largest individual stockholder of Caliston. This equity interest was acquired through a series of personal investments totaling Forty-Two Million Dollars ($42,000,000), deployed across three of Caliston's four completed financing rounds:
(a) Seed Round. Dr. Hale participated in Caliston's Seed round at or near the time of Caliston's founding in 2017. The precise date and amount of this investment are set forth in the timeline attached as Exhibit C to this memorandum. The Seed round represented the earliest institutional and personal capital raised by Caliston's founders.
(b) Series A Round. Dr. Hale participated in Caliston's Series A financing round, again investing personal funds. The Series A round involved additional institutional participation and resulted in a material step-up in Caliston's valuation relative to the Seed round.
(c) Series B Round. Dr. Hale participated in Caliston's Series B financing round. The Series B round was completed prior to October 2021 and further expanded Caliston's capitalization base.
To date, Caliston has raised a total of $347,000,000 in equity financing across its Seed, Series A, Series B, and Series C rounds. Caliston's most recent private valuation was $680,000,000 on a post-money basis, established in connection with the Series C financing round completed in October 2021. The Series C round was led by Ridgeline Ventures, LP (Ava Lindström, Managing Partner).
Notably, Dr. Hale did not participate in the Series C round. The reasons for Dr. Hale's non-participation are not entirely clear from the available record, though we understand from our interview with Mr. Whittaker that Dr. Hale had by that time accumulated a substantial position and may have determined that additional investment was not warranted. We have not independently verified the reasons for Dr. Hale's non-participation, nor have we been able to interview Dr. Hale directly given his recusal from the Special Committee process and the information barrier currently in effect.
3. Financial Interest in the Proposed Transaction.  The Proposed Transaction contemplates an aggregate equity value for Caliston of Nine Hundred Twenty-Five Million Dollars ($925,000,000), consisting of cash and Penterra common stock in a 75%/25% mix, together with CVRs with an aggregate face value of $125,000,000.
At the proposed $925,000,000 aggregate equity value, Dr. Hale's 28.5% equity stake in Caliston implies the following financial outcomes:
•  Implied Total Merger Proceeds (excluding CVR): $263,625,000 (calculated as 28.5% × $925,000,000)
•  Implied Cash Component: $197,718,750 (calculated as 75% × $263,625,000)
•  Implied Penterra Common Stock Component: $65,906,250 (calculated as 25% × $263,625,000)
•  Cost Basis: $42,000,000 (aggregate personal investment across Seed, Series A, and Series B rounds)
•  Implied Gain (excluding CVR): $221,625,000 (calculated as $263,625,000 − $42,000,000)
•  Implied Return Multiple (excluding CVR): Approximately 6.3x cost basis
In addition, if the CVR milestone is achieved — specifically, if Caliston's lead asset CLT-4019 receives approval from the U.S. Food and Drug Administration on or before December 31, 2026 — Dr. Hale would be entitled to receive an additional Thirty-Five Million Six Hundred Twenty-Five Thousand Dollars ($35,625,000), calculated as 28.5% of the $125,000,000 aggregate CVR value.
Accordingly, Dr. Hale's maximum total implied proceeds from the Proposed Transaction, inclusive of the CVR, would be $299,250,000 (calculated as $263,625,000 + $35,625,000).
The magnitude of Dr. Hale's financial interest in the Proposed Transaction is extraordinary by any standard. His implied gain of $221,625,000 (or up to $257,250,000 inclusive of the CVR) dwarfs his annual compensation as Penterra's Chairman and CEO ($5,800,000 total compensation for fiscal year 2022) by a factor of approximately 38x to 44x. This disparity underscores the materiality of Dr. Hale's conflict and the importance of ensuring that the Proposed Transaction is evaluated on its merits by directors who do not share Dr. Hale's financial incentives.
We also note that, because a portion of the consideration would be paid in Penterra common stock, Dr. Hale would receive additional Penterra shares in the merger, augmenting his existing 1.8% ownership stake in the Company. The precise number of additional Penterra shares Dr. Hale would receive will depend on the per-share value of Penterra common stock at the time of closing, which has not yet been determined. In any event, the stock component creates an alignment between Dr. Hale's interests as a Caliston stockholder receiving merger consideration and his interests as a Penterra stockholder — an alignment that may create incentives that are distinct from, and potentially adverse to, those of the Penterra stockholders who are not receiving Caliston merger consideration.
4. Board Observer Role at Caliston.  Since 2018, Dr. Hale has held a non-voting board observer seat at Caliston BioSciences. During the period from 2018 to the present, Dr. Hale has attended fourteen (14) of sixteen (16) Caliston board meetings, reflecting an attendance rate of approximately eighty-seven and one-half percent (87.5%). A summary of Dr. Hale's attendance record is attached as Exhibit D to this memorandum.
As a board observer, Dr. Hale has had the right to attend all regular and special meetings of the Caliston Board of Directors, to receive all board materials distributed to directors (subject to any recusals or conflicts at the Caliston board level), and to participate in board-level discussions. While a board observer does not hold voting rights and is not formally a fiduciary of the observed company, the observer role affords substantial access to the company's most sensitive non-public information. In the case of Caliston, this includes:
(a) Non-public financial information, including detailed revenue projections, cash flow analyses, burn rate data, and financing plans;
(b) Clinical development data, including interim and topline data from Caliston's pipeline programs, and in particular the Phase 2b trial for CLT-4019 (IND 158429), which is the lead asset and the primary driver of the Proposed Transaction's value;
(c) Strategic plans, including Caliston's long-term business strategy, partnership and licensing discussions, and any prior indications of interest from potential acquirers; and
(d) Board-level deliberations regarding corporate governance, management compensation, intellectual property strategy, and competitive positioning.
Dr. Hale's access to this non-public information raises significant concerns regarding informational asymmetry. Specifically, Dr. Hale possesses information about Caliston's business, prospects, and value that is not available to the other members of the Penterra Board of Directors or to Penterra's independent financial advisor. This informational advantage could, in theory, have influenced Dr. Hale's assessment of the appropriate acquisition price and deal terms, and could create a risk that Dr. Hale's proposal was informed by insider knowledge of Caliston's clinical pipeline, including any favorable or unfavorable developments that have not yet been publicly disclosed.
The existence of the information barrier established under the Independence Protocol is designed to mitigate this concern by ensuring that the Special Committee's evaluation of the Proposed Transaction is conducted independently of Dr. Hale and without reliance on information channeled through Dr. Hale. Nevertheless, the Special Committee should remain vigilant regarding the potential for informational leakage, and should rely exclusively on the independent due diligence conducted by Calderwood & Harkness LLP and Thorngate Partners LLC, as well as materials produced directly by Caliston through the formal data room process.
5. Disclosure History.  The timing and circumstances of Dr. Hale's disclosure of his Caliston equity interest to the Penterra Board of Directors warrant careful attention. Based on our review, the relevant timeline is as follows:
(a) Dr. Hale's investments in Caliston span the Seed, Series A, and Series B financing rounds. While the precise dates of these investments are set forth in Exhibit C, we note that the earliest investment (the Seed round) would have been made at or around the time of Caliston's founding in 2017, and the most recent investment (the Series B round) was completed prior to October 2021. Accordingly, Dr. Hale held his Caliston equity interest for a period of at least approximately sixteen (16) months — and potentially as long as approximately six (6) years — before disclosing it to the Penterra Board.
(b) Dr. Hale did not disclose his Caliston equity interest to the Penterra Board of Directors until February 14, 2023, when he first proposed the acquisition of Caliston at a regular meeting of the Board of Directors. According to Mr. Whittaker, Dr. Hale presented the Caliston opportunity as a strategic acquisition that would complement Penterra's existing pipeline, and disclosed his personal equity interest in Caliston at that time. Prior to February 14, 2023, no disclosure of the Caliston investment had been made to the Board, to the Company's General Counsel, or in any Section 16 filing (which would not have been required, as Caliston is a private company and Dr. Hale's interest does not constitute a Penterra equity transaction).
(c) The Board discussed the potential conflicts of interest arising from Dr. Hale's Caliston interest at a subsequent meeting on March 8, 2023. At that meeting, the Board determined that independent governance counsel should be retained to advise on the appropriate procedural framework for evaluating the Proposed Transaction in light of Dr. Hale's conflict.
(d) On April 12, 2023, the Board retained Alcott, Barringer & Cole LLP (Victoria Shen, M&A Partner) to serve as independent governance counsel and to advise the Board on the formation and mandate of a Special Committee.
(e) On May 15, 2023, the Board approved the formation of a Special Committee, subject to the identification and confirmation of independent directors to serve thereon.
(f) On June 2, 2023, the Special Committee was formally constituted by unanimous written consent of the disinterested directors, with Diane Prescott as Chair, James Okafor, and Dr. Helen Ng as members. On the same date, the Independence Protocol and Information Barrier Policy was adopted, and Dr. Hale executed the Voting and Recusal Agreement described below.
The delay between the earliest date on which Dr. Hale held a Caliston equity interest (2017, at the latest) and the date of his disclosure to the Penterra Board (February 14, 2023) is notable. While the Company's annual director and officer questionnaires request disclosure of outside business interests and potential conflicts, and while Penterra's Code of Ethics requires prompt disclosure of material conflicts of interest, the available record does not reflect any prior disclosure by Dr. Hale of his Caliston investment. We have not been able to determine whether Dr. Hale's annual questionnaire responses affirmatively omitted the Caliston interest or whether the questionnaire format did not specifically elicit disclosures of personal investments in private companies. We recommend that the Special Committee consider whether to request a supplemental interview or written statement from Dr. Hale (through counsel) regarding the circumstances of the delayed disclosure, to the extent the Special Committee deems such inquiry relevant to its evaluation of Dr. Hale's good faith and the process leading to the Proposed Transaction.
6. Conflict Classification.  Based on the foregoing, Dr. Hale is classified as an "interested director" under DGCL §144 by reason of his direct and material financial interest in Caliston. Specifically:
(a) Dr. Hale holds a 28.5% equity interest in Caliston, the target company in the Proposed Transaction, and would receive implied proceeds of $263,625,000 (or up to $299,250,000 inclusive of CVRs) upon consummation of the merger.
(b) Dr. Hale has served as a non-voting board observer at Caliston since 2018, giving him access to Caliston's non-public information and creating an informational advantage vis-à-vis the other Penterra directors.
(c) Dr. Hale's dual position as Penterra's Chairman and CEO, on the one hand, and as Caliston's largest individual stockholder and a board observer, on the other, places him squarely on both sides of the Proposed Transaction. He has a fiduciary duty to Penterra's stockholders to negotiate the lowest possible acquisition price and the most favorable terms for Penterra, while simultaneously holding a personal financial interest in maximizing the merger consideration payable to Caliston's stockholders, including himself.
In recognition of these conflicts, Dr. Hale has executed a Voting and Recusal Agreement dated June 2, 2023 (the "VRA"), pursuant to which he has committed to the following:
(i) Recuse himself from all deliberations of the Board of Directors and any committee thereof regarding the Proposed Transaction, including the Special Committee;
(ii) Abstain from voting on the merger agreement, the CVR agreement, and any ancillary transaction documents at the Board level;
(iii) Refrain from communicating with any member of the Special Committee regarding the Proposed Transaction, except through counsel and only to the extent authorized by the Special Committee Chair;
(iv) Refrain from accessing or reviewing any materials in the Project Coriander workspace or any other segregated repository established in connection with the Special Committee's work; and
(v) Cooperate with reasonable requests for information from the Special Committee or its advisors, to the extent such requests are communicated through Calderwood & Harkness LLP and do not compromise the independence of the Special Committee's process.
The VRA is designed to ensure that Dr. Hale does not exert undue influence over the Special Committee's evaluation of the Proposed Transaction and that the Special Committee retains sole and exclusive authority over all aspects of the transaction, including the authority to decline to pursue the acquisition (i.e., "say no" power).
B. Angela Whitmore — Director (Non-Independent) and EVP, Commercial Operations, Penterra Pharmaceuticals Corp.
1. Background and Position at Penterra.  Angela Whitmore serves as a non-independent member of the Penterra Board of Directors and concurrently holds the position of Executive Vice President, Commercial Operations at Penterra. In her executive capacity, Ms. Whitmore oversees Penterra's commercial organization, including sales, marketing, market access, and commercial strategy for the Company's marketed products.
Ms. Whitmore's equity holdings in Penterra are to be confirmed via her director and officer questionnaire response, which was received but is currently under review for completeness. Based on publicly available Section 16 filings, Ms. Whitmore holds shares of Penterra common stock and unvested equity awards. Importantly, Ms. Whitmore's Penterra equity holdings do not independently trigger Section 144 interest with respect to Caliston; her conflict arises solely from her spousal relationship with a Caliston insider, as described below.
2. Spousal Relationship with Dr. Evan Whitmore.  Angela Whitmore is the spouse of Dr. Evan Whitmore. Dr. Evan Whitmore serves in the following capacities at Caliston BioSciences:
(a) Head of Clinical Development. Dr. Evan Whitmore holds the position of Head of Clinical Development at Caliston, in which capacity he is responsible for overseeing the design, execution, and management of Caliston's clinical trial programs. This includes direct responsibility for the Phase 2b clinical trial for CLT-4019 (IND 158429), Caliston's lead pipeline asset and the primary driver of the Proposed Transaction's value. CLT-4019 is an investigational therapy currently in Phase 2b development, and the achievement of the CVR milestone (FDA approval by December 31, 2026) is directly within the scope of Dr. Evan Whitmore's professional responsibilities at Caliston.
(b) Member of the Board of Directors. Dr. Evan Whitmore serves as a member of the Caliston Board of Directors. In this capacity, he participates in board-level decisions regarding Caliston's corporate strategy, financing activities, and, presumably, the evaluation of the Proposed Transaction from Caliston's perspective. As a Caliston director, Dr. Evan Whitmore owes fiduciary duties to Caliston and its stockholders, and his interests are aligned with maximizing the value received by Caliston's stockholders in the merger.
Dr. Evan Whitmore holds equity in Caliston as part of the founders/management equity pool. According to the preliminary capitalization information provided by Caliston, the founders/management equity pool represents 30.5% of Caliston's aggregate outstanding equity, allocated as follows:
•  Dr. Nadia Sorensen (CEO, Co-Founder): 14.2%
•  Dr. Raj Malhotra (CSO, Co-Founder): 9.8%
•  Other management/founders (includes Dr. Evan Whitmore): 6.5%
Dr. Evan Whitmore's individual equity stake falls within the "other management/founders" category, which holds an aggregate 6.5% of Caliston's outstanding equity. The precise breakdown of individual holdings within this category has not yet been provided in the Caliston data room, and we have requested a more granular capitalization table that would identify Dr. Evan Whitmore's specific equity percentage. In any event, as a Caliston stockholder, Dr. Evan Whitmore would receive merger consideration in the Proposed Transaction, which at the proposed $925,000,000 aggregate equity value could represent a meaningful sum depending on the size of his individual allocation within the 6.5% pool.
As a result of her spousal relationship with Dr. Evan Whitmore, Angela Whitmore has an indirect financial interest in the outcome of the Proposed Transaction. The consummation of the merger at the proposed terms would result in Dr. Evan Whitmore receiving cash and Penterra common stock as merger consideration, the proceeds of which would inure to the benefit of the Whitmore marital community (or to Dr. Evan Whitmore individually, depending on the applicable property regime). In addition, the spousal relationship creates a natural presumption that Angela Whitmore may not be able to exercise fully independent and disinterested judgment with respect to a transaction involving her spouse's employer, a company on whose board her spouse sits, and a transaction from which her spouse stands to derive significant financial benefit.
3. Conflict Classification.  Angela Whitmore's spousal relationship with a member of Caliston's Board of Directors and a senior officer of Caliston creates a conflict of interest that, while indirect in nature, is sufficient to disqualify her from service on the Special Committee and from participation in the Special Committee's deliberations regarding the Proposed Transaction.
Delaware courts have recognized that familial relationships — and spousal relationships in particular — can compromise a director's ability to act independently with respect to a conflicted transaction. See, e.g., In re Ostrander Corporation. Derivative Litig., 824 A.2d 917 (Del. Ch. 2003) (recognizing that close personal relationships can compromise independence); Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040 (Del. 2004) (discussing the standard for directorial independence). While the spousal relationship alone may not establish a direct financial interest under DGCL §144, it is sufficient to raise concerns about Angela Whitmore's independence with respect to the Proposed Transaction.
Accordingly, Angela Whitmore has been excluded from all Special Committee deliberations, materials, and communications under the Independence Protocol dated June 2, 2023. She was recused from the Board vote establishing the Special Committee, along with Dr. Hale and Raymond Tusk. She does not have access to the Project Coriander workspace and is not to receive any materials produced by or for the Special Committee or its advisors without the prior written authorization of the Special Committee Chair.
C. Raymond Tusk — Director (Non-Independent), Penterra Pharmaceuticals Corp.
1. Background.  Raymond Tusk serves as a non-independent member of the Penterra Board of Directors. Mr. Tusk has been identified as a Hale appointee to the Board — that is, Mr. Tusk was nominated to the Board at the suggestion or direction of Dr. Hale, and his continued service on the Board is understood to be attributable, at least in part, to his relationship with Dr. Hale.
Our review has not identified any direct equity interest held by Mr. Tusk in Caliston BioSciences. We have also not identified any familial relationships, employment relationships, or other material business relationships between Mr. Tusk and any Caliston stakeholder. Mr. Tusk's director and officer questionnaire, which was received and reviewed, confirmed the absence of any such relationships.
2. Basis for Recusal.  Notwithstanding the absence of a direct relationship between Mr. Tusk and Caliston, Mr. Tusk has been classified as non-independent for purposes of the Proposed Transaction due to his relationship with Dr. Hale. The characterization of Mr. Tusk as a "Hale appointee" raises concerns that Mr. Tusk may not be able to exercise fully independent judgment with respect to a transaction in which Dr. Hale has a substantial personal financial interest. Delaware law recognizes that a director who has a sufficiently close relationship with an interested party may lack the independence necessary to evaluate a conflicted transaction disinterestedly. See, e.g., In re MFW S'holders Litig., 67 A.3d 496 (Del. Ch. 2013), aff'd sub nom. Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014) (discussing the prerequisites for cleansing of a conflicted controller transaction, including the requirement of a genuinely independent special committee).
As a precautionary measure, and to ensure the integrity and credibility of the Special Committee process, Mr. Tusk has been recused from all Special Committee deliberations. He was excluded from the Board vote establishing the Special Committee, and he is not a member of the Special Committee. Mr. Tusk does not have access to the Project Coriander workspace and is excluded from all materials and communications related to the Special Committee's evaluation of the Proposed Transaction.
We believe that Mr. Tusk's precautionary recusal is appropriate and strengthens the procedural posture of the Special Committee's process, even though no direct conflict has been identified with respect to Mr. Tusk personally.
IV. Review of Other Penterra Directors and Officers
A. Independent Directors (Special Committee Members)
The Special Committee is composed of three independent directors of Penterra, each of whom has been reviewed and confirmed as independent for purposes of the Proposed Transaction.
1. Diane Prescott — Special Committee Chair.  Diane Prescott serves as an independent member of the Penterra Board of Directors and has been designated as Chair of the Special Committee. Ms. Prescott is the former Chief Executive Officer of Windbridge Health Systems, Inc., a publicly traded healthcare services company, where she served as CEO from 2008 to 2019. She has served on the Penterra Board since 2020.
Our review has confirmed that Ms. Prescott does not hold any equity interest in Caliston BioSciences. We have identified no familial, employment, consulting, or other business relationships between Ms. Prescott and any Caliston stakeholder, including Caliston's directors, officers, employees, equity holders, or professional advisors. Ms. Prescott's Director Independence Questionnaire was received and reviewed, and a summary memorandum confirming her independence was prepared and dated June 5, 2023.
Ms. Prescott's independence is further supported by the absence of any economic relationship between Ms. Prescott and Dr. Hale outside of their mutual service on the Penterra Board, and by the absence of any social, familial, or professional ties that would compromise her ability to evaluate the Proposed Transaction independently.
2. James Okafor — Special Committee Member.  James Okafor serves as an independent member of the Penterra Board of Directors and as a member of the Special Committee. Mr. Okafor is a retired Managing Director of Fielding Capital Partners, LLC, a healthcare-focused private equity firm, where he spent over twenty years advising on and executing transactions in the life sciences sector. He has served on the Penterra Board since 2018.
Our review has confirmed that Mr. Okafor does not hold any equity interest in Caliston BioSciences. We have identified no familial, employment, consulting, or other business relationships between Mr. Okafor and any Caliston stakeholder. Given Mr. Okafor's extensive career in healthcare private equity, we conducted a targeted review of whether Mr. Okafor has any past or present relationship with Ridgeline Ventures, LP (Ava Lindström, Managing Partner), which holds a 22.3% equity interest in Caliston, or with Meridian Life Sciences Fund III, LP (Tomás Reyes, Managing Partner), which holds an 18.7% equity interest in Caliston. No such relationship was identified. Mr. Okafor's Director Independence Questionnaire was received and reviewed, and his independence has been confirmed.
3. Dr. Helen Ng — Special Committee Member.  Dr. Helen Ng serves as an independent member of the Penterra Board of Directors and as a member of the Special Committee. Dr. Ng is a Professor of Pharmacology at Wexford University and a former member of an advisory committee to the U.S. Food and Drug Administration. She has served on the Penterra Board since 2021.
Our review has confirmed that Dr. Ng does not hold any equity interest in Caliston BioSciences. We have identified no familial, employment, consulting, or other business relationships between Dr. Ng and any Caliston stakeholder. Given Dr. Ng's academic background and FDA advisory experience, we conducted a targeted review of whether Dr. Ng has any past or present academic, consulting, or collaborative relationships with members of Caliston's scientific team, including Dr. Nadia Sorensen (CEO and Co-Founder), Dr. Raj Malhotra (Chief Scientific Officer and Co-Founder), and Dr. Evan Whitmore (Head of Clinical Development). No such relationships were identified. Dr. Ng's Director Independence Questionnaire was received and reviewed, and her independence has been confirmed.
B. Other Independent Directors (Not on Special Committee)
In addition to the three Special Committee members, three additional independent directors serve on Penterra's nine-member Board of Directors, bringing the total number of independent directors to six (6) out of nine (9). Director and officer questionnaires and a review of publicly available records confirm that none of the three remaining independent directors holds any equity interest in Caliston BioSciences, and none has any material familial, employment, consulting, or other business relationship with any Caliston stakeholder that would give rise to a conflict of interest or compromise such director's independence with respect to the Proposed Transaction.
While these three additional independent directors are not members of the Special Committee, they remain eligible to participate in any full Board vote on the Proposed Transaction to the extent such vote is required following the Special Committee's recommendation, subject to any further recusal determinations that may be made at that time.
C. Named Executive Officers
1. Priya Anand — Chief Financial Officer.  Priya Anand serves as Chief Financial Officer of Penterra. Our review has confirmed that Ms. Anand does not hold any equity interest in Caliston BioSciences. We have identified no familial, employment, consulting, or other business relationships between Ms. Anand and any Caliston stakeholder. Ms. Anand completed a director and officer questionnaire, and no conflicts of interest were identified.
We note that Ms. Anand will be involved in the Proposed Transaction in her management capacity, including with respect to financing arrangements, financial due diligence, and integration planning. This management-level involvement does not give rise to a conflict of interest, and Ms. Anand may continue to perform her duties in connection with the Proposed Transaction in the ordinary course, subject to the direction of the Special Committee and the information barrier protocols applicable to Dr. Hale, Angela Whitmore, and Raymond Tusk.
2. Lawrence Whittaker — General Counsel and Corporate Secretary.  Lawrence Whittaker serves as General Counsel and Corporate Secretary of Penterra. Our review has confirmed that Mr. Whittaker does not hold any equity interest in Caliston BioSciences. We have identified no familial, employment, consulting, or other business relationships between Mr. Whittaker and any Caliston stakeholder. Mr. Whittaker completed a director and officer questionnaire, and no conflicts of interest were identified.
In his capacity as Corporate Secretary, Mr. Whittaker prepared the Board materials and facilitated the process by which the Special Committee was formed, including the drafting of the Board Resolution and the coordination of the independence determination process. Mr. Whittaker has also served as a point of contact for Calderwood & Harkness LLP on procedural matters related to the Special Committee's formation and operation. This coordination role is permitted under the Independence Protocol, provided that Mr. Whittaker does not serve as a conduit for communications between the recused insiders (Dr. Hale, Angela Whitmore, or Raymond Tusk) and the Special Committee regarding the substantive evaluation of the Proposed Transaction.
V. Review of Caliston Stakeholders and Advisors for Cross-Relationships
A. Caliston Major Equity Holders
The following table sets forth the major equity holders of Caliston BioSciences, together with their equity interests and any identified relationships with Penterra Insiders:
With respect to the institutional investors, we note the following:
(a) Ridgeline Ventures, LP is a life sciences-focused venture capital firm based in San Francisco, California. Ava Lindström serves as Managing Partner. Ridgeline led Caliston's Series C financing round in October 2021. Our review did not identify any relationship between Ridgeline Ventures or Ms. Lindström and any Penterra Insider. Ridgeline Ventures is not an investor in Penterra common stock based on our review of Penterra's most recent proxy statement and institutional ownership filings.
(b) Meridian Life Sciences Fund III, LP is a healthcare-focused investment fund based in New York, New York. Tomás Reyes serves as Managing Partner. Our review did not identify any relationship between Meridian Life Sciences Fund III or Mr. Reyes and any Penterra Insider. Meridian Life Sciences Fund III is not an investor in Penterra common stock based on our review of available ownership data.
B. Caliston's Professional Advisors
We have reviewed Caliston's professional advisors for any cross-relationships with Penterra Insiders. The results of that review are as follows:
(a) Legal Counsel: Caliston is represented by Whitfield Graves LLP (Kenneth Pratt, Corporate/Life Sciences Partner), One Federal Street, Suite 2600, Boston, Massachusetts 02110. We have not identified any relationship between Whitfield Graves LLP or Mr. Pratt and any Penterra Insider. Whitfield Graves LLP does not currently represent Penterra in any matter, and we are not aware of any prior representation of Penterra by that firm.
(b) Financial Advisor: Caliston has engaged Fendowell Sinclair & Co. (Sandra Wu, Managing Director), 200 Clarendon Street, 50th Floor, Boston, Massachusetts 02116, as its financial advisor in connection with the Proposed Transaction. We have not identified any relationship between Fendowell Sinclair & Co. or Ms. Wu and any Penterra Insider. Fendowell Sinclair & Co. does not currently advise Penterra and has not done so within the past five years based on our review.
(c) Independent Auditor: Caliston's financial statements are audited by Brentmoor Advisors LLP, 125 Summer Street, Suite 800, Boston, Massachusetts 02110. We have not identified any relationship between Brentmoor Advisors LLP and any Penterra Insider. Brentmoor Advisors LLP does not serve as Penterra's auditor or provide any services to Penterra.
C. Penterra's Professional Advisors Cross-Check
We have also reviewed Penterra's own professional advisors for any cross-relationships with Caliston or its stakeholders:
(a) Regular Outside Counsel: Penterra's regular outside counsel is Alcott, Barringer & Cole LLP (Victoria Shen, M&A Partner). As noted above, Alcott, Barringer & Cole LLP was retained by the Board on April 12, 2023, to provide initial governance advice in connection with the conflicts identified in the Proposed Transaction and the formation of the Special Committee. Alcott, Barringer & Cole LLP has been recused from advising the Special Committee on the substantive evaluation and negotiation of the Proposed Transaction; that role is filled by Calderwood & Harkness LLP. We have not identified any conflict between Alcott, Barringer & Cole LLP and Caliston or its stakeholders.
(b) Independent Auditor: Penterra's independent auditor is Harwick & Tolliver LLP. We have not identified any relationship between Harwick & Tolliver LLP and Caliston or its stakeholders.
(c) Transfer Agent: Penterra's transfer agent is Columnar Trust Services, Inc. We have not identified any relationship between Columnar Trust Services and Caliston or its stakeholders.
(d) D&O Insurance Carrier: Penterra's directors' and officers' liability insurance is provided by Northpoint Specialty Insurance Company under Policy No. NSI-DO-2023-88412, providing coverage in a $50,000,000 tower. We have not identified any relationship between Northpoint Specialty Insurance Company and Caliston or its stakeholders.
VI. Analysis of Potential Indirect or Undisclosed Relationships
In addition to the specific reviews described in Sections III through V above, we have conducted a broader analysis to identify any indirect, non-obvious, or potentially undisclosed relationships between Penterra Insiders and Caliston stakeholders. The results of that analysis are as follows:
(a) Vendor and Consulting Relationships. We reviewed available records of Penterra's and Caliston's vendor lists, consulting agreements, and joint venture arrangements. This review did not reveal any additional related-party relationships beyond those identified in this memorandum. Specifically, we found no evidence that any Penterra Insider has provided consulting services to Caliston or any Caliston stakeholder, or vice versa.
(b) Common Institutional Investors. We compared the holdings of Penterra's top twenty (20) institutional stockholders (as reported in the most recent proxy statement and institutional ownership filings) against Caliston's investor base. We did not identify any common institutional investors that would create a disabling conflict of interest for any Penterra director or officer. While it is possible that certain institutional investors hold positions in both Penterra common stock and Caliston equity through affiliated fund structures, no such overlapping positions were identified that would compromise the independence of any Penterra Insider or create a conflict requiring disclosure or recusal.
(c) Personal Investments by Other Penterra Officers or Employees. Other than Dr. Hale, no Penterra officer or employee was identified as having made personal investments in Caliston or as having served in any advisory, consulting, or governance capacity at Caliston. This conclusion is based on the director and officer questionnaire responses, our interview with Mr. Whittaker, and our review of Caliston's preliminary capitalization documents.
(d) Caliston's Founding and Early History. Caliston was founded in 2017 by Dr. Nadia Sorensen and Dr. Raj Malhotra. Dr. Hale's investments in Caliston began at the Seed round, contemporaneous with or shortly after Caliston's founding. We have not identified any role played by other Penterra Insiders in Caliston's founding or early financing. The circumstances under which Dr. Hale became aware of the Caliston investment opportunity have not been fully explored; we recommend that the Special Committee consider whether further inquiry into this question is warranted.
In summary, our broader analysis has not revealed any additional related-party relationships beyond the two material relationships (Dr. Hale and Angela Whitmore) and the one precautionary recusal (Raymond Tusk) identified in Section III of this memorandum.
VII. Implications for the Special Committee Process
A. Entire Fairness Considerations
Dr. Hale's 28.5% equity interest in Caliston and his concurrent position as Chairman and Chief Executive Officer of Penterra places the Proposed Transaction squarely within the interested-director framework under DGCL §144 and implicates the entire fairness standard of judicial review. Under Delaware law, where a corporate fiduciary stands on both sides of a transaction — or derives a personal financial benefit from the transaction that is not shared by the stockholders generally — the transaction is subject to entire fairness review unless the procedural protections of DGCL §144 are satisfied and the transaction is approved by a well-functioning special committee of independent directors or by an informed vote of the disinterested stockholders.
The magnitude of Dr. Hale's financial interest makes this case particularly significant. As noted above, Dr. Hale's implied gain from the Proposed Transaction ($221,625,000, or up to $257,250,000 inclusive of CVRs) exceeds his annual total compensation as Penterra's CEO ($5,800,000) by a factor of approximately 38x to 44x. This disparity is sufficient, standing alone, to establish the materiality of Dr. Hale's conflict. The informational asymmetry arising from Dr. Hale's board observer role at Caliston further heightens the risk that the Proposed Transaction may have been proposed at a price or on terms that favor Dr. Hale's interests as a Caliston stockholder over the interests of Penterra's public stockholders.
The Angela Whitmore / Dr. Evan Whitmore spousal relationship, while not creating a direct financial interest for Angela Whitmore as a Penterra Insider, provides additional support for the conclusion that robust procedural protections are necessary. The recusal of Angela Whitmore from the Special Committee process ensures that no member of the body evaluating the Proposed Transaction has a familial relationship with a Caliston director or officer.
B. Procedural Safeguards in Place
The Special Committee and its advisors have implemented the following procedural safeguards to address the conflicts of interest identified in this memorandum and to establish a strong record of fair process:
1.  Independent Special Committee. The Special Committee is composed of three fully independent directors — Diane Prescott (Chair), James Okafor, and Dr. Helen Ng — each of whom has been reviewed and confirmed as independent for purposes of the Proposed Transaction. The Special Committee has been granted sole and exclusive authority to evaluate the Proposed Transaction, negotiate the terms thereof, and make a recommendation to the full Board of Directors, including the authority to decline to pursue the acquisition (i.e., "say no" power). The Special Committee's mandate is set forth in the Board Resolution dated June 2, 2023.
2.  Independent Legal Counsel. The Special Committee has retained Calderwood & Harkness LLP (Daniel Obi, Working Associate; Renata Vasquez, Responsible Partner) as its independent legal counsel. Calderwood & Harkness LLP does not represent Penterra in any other matter and has no relationship with Dr. Hale, Caliston, or any Caliston stakeholder that would compromise its independence.
3.  Independent Financial Advisor. The Special Committee has engaged Thorngate Partners LLC as its independent financial advisor, effective June 16, 2023. Thorngate Partners will provide the Special Committee with an independent valuation analysis of Caliston, an assessment of the fairness of the proposed consideration from a financial point of view, and a fairness opinion if requested by the Special Committee. Thorngate Partners does not have any relationship with Dr. Hale, Caliston, or any Caliston stakeholder that would compromise its independence.
4.  Recusal of Conflicted Insiders. Dr. Marcus Hale, Angela Whitmore, and Raymond Tusk have been recused from all Special Committee deliberations, materials, and communications relating to the Proposed Transaction. The recusal is documented in the Board Resolution dated June 2, 2023 and is reinforced by the Voting and Recusal Agreement executed by Dr. Hale on the same date.
5.  Information Barrier. An information barrier has been established under the Independence Protocol, including a segregated Project Coriander workspace for the storage and management of all documents, analyses, and communications related to the Special Committee's evaluation of the Proposed Transaction. Access to the Project Coriander workspace is limited to the Special Committee members, Calderwood & Harkness LLP, Thorngate Partners LLC, and such other persons as the Special Committee Chair may authorize in writing. Dr. Hale, Angela Whitmore, Raymond Tusk, and Penterra management personnel who have not been specifically authorized do not have access to the Project Coriander workspace.
6.  Recusal of Penterra's Regular Outside Counsel. Alcott, Barringer & Cole LLP (Victoria Shen), Penterra's regular outside counsel, has been recused from advising the Special Committee on the substantive evaluation and negotiation of the Proposed Transaction. Alcott, Barringer & Cole provided initial governance advice in connection with the identification of Dr. Hale's conflict and the formation of the Special Committee, but all advisory functions with respect to the Proposed Transaction are now handled exclusively by Calderwood & Harkness LLP.
C. Recommendations.  Based on the findings and analysis set forth in this memorandum, we respectfully offer the following recommendations to the Special Committee:
1.  Continue Operating Under the Independence Protocol. The Special Committee should continue to operate under the Independence Protocol and Information Barrier Policy adopted on June 2, 2023, without modification unless circumstances warrant. The procedural safeguards currently in place are well-designed to address the conflicts of interest identified herein and to establish a strong record of fair process that would withstand judicial scrutiny under the entire fairness standard.
2.  Route All Communications Through Independent Advisors. All communications with Caliston, its counsel (Whitfield Graves LLP), and its financial advisor (Fendowell Sinclair & Co.) should be routed exclusively through Calderwood & Harkness LLP and Thorngate Partners LLC. Under no circumstances should Dr. Hale, Angela Whitmore, or Raymond Tusk serve as a conduit for communications between the Special Committee and Caliston or its advisors.
3.  Monitor for Additional Relationships or Interests. Any additional relationships, affiliations, or financial interests that come to light during the course of due diligence or otherwise should be immediately disclosed to the Special Committee and documented as a supplement to this memorandum. We will continue to review data room productions and other materials as they become available for any indications of previously undisclosed relationships.
4.  Maintain This Memorandum as Part of the Process Record. This memorandum should be maintained as part of the Special Committee's formal process record in support of the entire fairness analysis. The memorandum should be updated as warranted to reflect any new information or developments, and all updates should be distributed to the Special Committee members and retained in the Project Coriander workspace.
5.  Consider Supplemental Inquiry Regarding Dr. Hale's Disclosure Timeline. As noted in Section III.A.5 above, the delay between the date on which Dr. Hale first acquired his Caliston equity interest and the date on which he disclosed that interest to the Penterra Board is notable. The Special Committee may wish to consider whether a supplemental inquiry — conducted through counsel — into the circumstances of this delayed disclosure would be useful in evaluating the process and good faith surrounding the Proposed Transaction.
VIII. Relationship Matrix (Summary Table)
The following table provides a comprehensive summary of all Penterra Insiders reviewed in this memorandum, together with their roles, any identified Caliston relationships, the nature and extent of any financial interest, and their recusal status:
IX. Exhibits / Attachments
The following exhibits are attached to and incorporated by reference into this memorandum:
Exhibit A: Caliston BioSciences, Inc. — Capitalization Table (summary, as of the most recent available date, based on preliminary data room materials)
Exhibit B: Penterra Pharmaceuticals Corp. — Board of Directors Roster and Independence Classifications (reflecting the independence determinations made in connection with the Special Committee formation process)
Exhibit C: Timeline of Dr. Hale's Investments in Caliston BioSciences (Seed, Series A, and Series B rounds — amounts, dates, and implied equity percentages at time of investment)
Exhibit D: Summary of Dr. Hale's Caliston Board Observer Attendance Record (2018–2023) (reflecting meeting dates, attendance/absence, and any notations regarding recusals from specific agenda items at the Caliston board level)
Exhibits A through D are maintained separately in the Project Coriander workspace and are available to Special Committee members upon request. Due to the sensitive nature of the capitalization and investment data contained in these exhibits, they should not be reproduced or distributed outside of the Special Committee and its authorized advisors.
Certification and Signature block
This memorandum has been prepared by the undersigned in their capacities as counsel to the Special Committee of the Board of Directors of Penterra Pharmaceuticals Corp. in connection with the Proposed Transaction (Project Coriander). The analysis and recommendations set forth herein are based on our review of the sources described in Section I and reflect our professional judgment as of the date hereof. This memorandum is subject to revision and supplementation as additional information becomes available.
Prepared by:
________________________________________
Daniel Obi Working Associate Calderwood & Harkness LLP
Reviewed by:
________________________________________
Renata Vasquez Responsible Partner Calderwood & Harkness LLP
Calderwood & Harkness LLP 1700 Market Street, Suite 3400 Philadelphia, Pennsylvania 19103
C&H Matter No. 1025-00006
Date: June 20, 2023
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